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Rather than embrace the SaaS business model fully, the company has said it would offer software plus services, a strategy Turner reiterated on Tuesday. In fact, he acknowledged that he has intentionally held Microsoft back a bit in moving into hosted services, but he is confident the company will eventually lead the commercial market for hosted software.

"We know exactly how to win in this space," Turner said.

Another Microsoft executive implied that the rest of the market might follow the software company's strategy, an explanation Microsoft has been using to validate its slow move to the SaaS market.

Google and Salesforce.com, which have led the way in hosted services, have both also taken steps toward creating software that resides on the client, said Tim O'Brien, senior director in Microsoft's platform strategy group. Google Gears, for example, adds software to browsers to enhance services. Salesforce.com offers an offline version that lets users access applications when they don't have an Internet connection.

However, in most cases it's Microsoft that likely will be following competitors in the hosted services market. Turner hinted Tuesday that offering a hosted development platform in the cloud, like competitors Salesforce.com and Google, could be a next step for the company's hosted services strategy. Though he said Microsoft was not announcing a hosted platform "today," he did not deny the company had plans to do so in the future.

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